Some Tech Stocks Hoard Huge Cash

By Eric Fox | February 15, 2009 AAA

Many companies entered the recession already badly limping, burdened with huge amounts of debt and marginal products or services. But Cisco Systems (Nasdaq:CSCO), Apple (Nasdaq:AAPL), Microsoft (Nasdaq:MSFT) and Google (Nasdaq:GOOG) seem to have the opposite problem - they are flush with cash and the best in class of their subsegments. While it is always reassuring to invest in a company with a large cash cushion in a recession, some adjustments need to be taken.

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Four Horsemen
Cisco Systems dominates the networking equipment space and had $29.5 billion in cash, equivalents and investments at the end of its second fiscal quarter ended January 24, 2009.

Apple, maker of the iPod and the Mac computer, ended its quarter on December 27, 2008 with $25.6 billion in cash, cash equivalents and short-term marketable securities.

Microsoft controls the PC desktop space with Windows and other applications and is slowly making inroads into the internet and other areas. It ended 2008 with $20.7 billion.

Google needs no introduction. And with Yahoo! (Nasdaq:YHOO) weighed down with its own problems, it doesn't seem to face much competition these days. At present, Google has $14.2 billion on its balance sheet in cash and investments. (Learn how to gain exposure to these types of stocks in Technology Sector Funds.)

Cash And Short-Term Investments MRQ (millions)

Company Cash Short-Term
Investments
Total
Cisco $4,175 $25,356 $29,531
Apple $7,236 $18,411 $25,647
Microsoft $8,346 $12,369 $20,715
Google $6,082 $8,137 $14,219

Some adjustments and other considerations need to be made about the cash balances, however. Some of these companies have debt. Although it may be negligible, it should be netted against the companies' cash to determine net cash figures. Cisco and Microsoft have small amounts of debt, which slightly lowers net cash.

Net Cash MRQ (millions)

Company
Cash/ST
Invest

Debt


Net Cash
Cisco $29,531 $6,848 $22,683
Apple $25,647 $- $25,647
Microsoft $20,715 $2,000 $18,715
Google $14,219 $- $14,219

The net amount of cash does not take into account the number of shares with a claim against the cash. Therefore, the net cash should be calculated per share outstanding.

Net Cash Per Share (millions, except per share)

Company
Net Cash

Shares


Net Cash/ST
Per Share
Cisco $22,683 5,864 $3.87
Apple $25,647 901 $28.47
Microsoft $18,715 8,914 $2.10
Google $14,219 318 $44.71

Finally, as a margin of safety, net cash per share should be compared to the market price of the stock. Apple has the highest amount of net cash per share as a percentage of it stock price.

Net Cash Per Share By Price

Company
Net Cash/ST
Per Share


Close Price
on 2/18/2009

Net Cash/ST as
% of Stock Price

Cisco $3.87 $15.37 25.2%
Apple $28.47 $94.37 30.2%
Microsoft $2.10 $18.12 11.6%
Google $44.71 $353.13 12.7%

Sometimes a company can classify an asset as a short-term investment and then have problems with it later. In 2008, for example, many companies found that the auction rate securities they purchased could not be sold. Therefore, investors should pay special attention when evaluating stocks for future investment.

The Bottom Line
Following implementation of these adjustments, Cisco, Apple, Microsoft and Google have more than enough financial power to get through the recession. The cash can also be put to use to pick off and acquire other companies that are not faring so well during the downturn. An investor who craves exposure to equities certainly can do worse than these four stocks. At least, investors won't have to worry about these companies needing bailout money from the government. (Learn more in Pinpoint Takeovers First and How To Evaluate The Quality Of EPS.)

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